----

| /X/ | QUARTERLY      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      FOR THE QUARTERLY PERIOD ENDED March 31,2009 |
|-----|------------------------------------------------------------------------------------------------------------------------------------------|

| /      / | TRANSITION      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|----------|----------------------------------------------------------------------------------------------|

Z TRIM HOLDINGS, INC.

|   ILLINOIS                                                    |        36-4197173                               |
|-------------------------------------------------------------------------|------------------------------------------------------|
| (State      or Other Jurisdiction ofIncorporation      or Organization) |        (I.R.S. EmployerIdentification      No.) |

----

----

----

----

ITEM 3.QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISKS

| 1.   | As      of March 31, 2009, we did not maintain effective controls over the control      environment.  Specifically we have not developed and effectively      communicated to our employees its accounting policies and      procedures.  This has resulted in inconsistent      practices.   Since these entity level programs have a pervasive      effect across the organization, management has determined that these      circumstances constitute a materialweakness. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | As      of March 31, 2009, we did not maintain effective controls over financial      statement disclosure. Specifically, controls were not designed and in      place to ensure that all disclosures required were originally addressed in      our financial statements.   Accordingly, management has      determined that this control deficiency constitutes a material      weakness. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.        | As      of March 31, 2009, we did not maintain effective controls over financial      reporting which resulted in the restatement of several previous financial      statements.  Specifically, controls were not designed and in      place to ensure that majority-owned subsidiaries and complex convertible      instruments were properly reflected in our financial statements.      Accordingly, management has determined that this control deficiency      constitutes a material weakness. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 3(i) | Articles      of Incorporation of Z Trim Holdings, Inc. (filed as Exhibit 2.1 to the      Company's Form 10-SB filed on August 21, 2000, and as Exhibit 3.3 to the      Company's Form 10-QSB filed on August 16, 2004, and incorporated herein by      reference). |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(ii) | Bylaws      of Z Trim Holdings, Inc., as amended (filed as Exhibit 2.2 to the      Company’s Registration Statement on Form 10-SB, Exhibit 3(ii) to the      Company’s Form 8-K filed on November 2, 2007, and as Exhibit 3(ii) to the      Company’s Form 8-K filed on November 16, 2007, and incorporated herein by      reference). |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.1 | Specimen      Certificate for common stock (filed as Exhibit 3.1 to the Company's Form      10-SB filed on August 21, 2000, and incorporated herein by      reference). |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.2 | Form      of Subscription Agreement (filed as Exhibit 4.1 to the Company's Form 8-K      filed on March 30, 2006 and incorporated herein by    reference). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.3 | Form      of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company's      Form 8-K filed on March 30, 2006 and incorporated herein by      reference). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.4 | Form      of Registration Rights Agreement (filed as Exhibit 4.3 to the Company's      Form 8-K filed on March 30, 2006 and incorporated herein by      reference). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.5 | Form      of Subscription Agreement (filed as Exhibit 4.5 to the Company’s Form      10-KSB filed on April 2, 2007 and incorporated herein by      reference). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.6 | Form      of Warrant to Purchase Common Stock (filed as Exhibit 4.6 to the Company’s      Form 10-KSB filed on April 2, 2007 and incorporated herein by      reference). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.7 | Form      of Registration Rights Agreement (filed as Exhibit 4.7 to the Company’s      Form 10-KSB filed on April 2, 2007 and incorporated herein by      reference). |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.1 | Steve      Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form      10-QSB for the quarter ending June 20, 2006 and incorporated herein by      reference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.2 | Brian      Chaiken Employment Agreement, dated October 17, 2007 (filed as Exhibit      10.2 to the Company’s Form 10-KSB filed on April 14, 2008 and incorporated      herein by reference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.3 | Intentionally      left blank. |
|------|--------------------------------|

| 10.4 | Z      Trim Holdings, Inc. 2004 Equity Incentive Plan (filed as Appendix C to the      Z Trim's Proxy Statement for its Annual Meeting conducted on June 16, 2004      and approved by its Shareholders on that date and incorporated herein by      reference). |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.5 | Industrial      Lease Agreement between CLO Enterprises and Z Trim Holdings, Inc. dated      May 20, 1999 (filed as Exhibit 6.7 the Company’s Registration Statement on      Form 10-SB and incorporated herein by  reference). |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.6 | Industrial      Lease Agreement between CLO Enterprises and Z Trim Holdings, Inc. dated      June 18, 1999 (filed as Exhibit 6.8 to Z Trim's Registration Statement on      Form 10-SB and incorporated herein by  reference). |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.7 | Assignment      of License Agreement between UTEK Corporation, Z Trim Holdings, Inc. and      Brookhaven Science Associates dated March 26 2003 (filed as Exhibit 10.14      to Z Trim's Form 10-QSB for the quarter ending September 30, 2003 and      incorporated herein by reference). |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.8 | Assignment      of License Agreement between UTEK Corporation, Z Trim Holdings, Inc. and      University of Illinois dated July 9, 2003 (filed as Exhibit 10.15 to Z      Trim's Form 10-QSB for  the quarter ending September 30, 2003      and incorporated herein byreference). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.9 | Assignment      of License Agreement between Z Trim Holdings, Inc. and Brookhaven Science      Associates dated July 22, 2003 (filed as Exhibit 10.16 to Z Trim's Form      10-QSB for the quarter ending September 30, 2003 and incorporated herein      by reference). |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.1* | Statement      Under Oath of Principal Executive Officer of the Company pursuant to      Section 302 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 31.2* | Statement      Under Oath of Principal Financial Officer of the Company pursuant to      Section 302 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 32.1* | Statement      Under Oath of Principal Executive Officer of the Company pursuant to      Section 906 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

| 32.2* | Statement      Under Oath of Principal Financial Officer of the Company pursuant to      Section 906 of Sarbanes-Oxley Act of2002. |
|-------|------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Z      TRIM HOLDINGS, INC.                                                                         |   |                                                                                                                                                                |   |                                                                                                               |
|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      BALANCE SHEETS                                                                   |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| MARCH  31, 2009                                                                          |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| ASSETS                                                                                             |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   | (Unaudited)                                                                                                                                                         |   |                                                                                                               |
|                                                                                               |   | 3/31/2009                                                                                                                                                           |   | 12/31/2008                                                                                                         |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Current      Assets                                                                                |   |                                                                                                                                                                |   |                                                                                                               |
| Cash      and cash equivalents                                                                     |   |  $            104,931                                                                              |   |  $            592,696                             |
| Accounts      receivable (net of allowance of $10,067)                                             |   | 90,754                                                                                                                                                              |   | 206,231                                                                                                            |
| Inventory                                                                                          |   |                 174,111                                                             |   |                 182,971            |
| Prepaid      expenses and other assets                                                             |   |                   62,720                                                  |   |                   86,445 |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Total      current assets                                                                          |   |                 432,516                                                             |   |             1,068,343                                  |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Property      and equipment, net                                                                   |   |             4,131,707                                                                                   |   |             4,061,436                                  |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Long      Term Assets                                                                              |   |                                                                                                                                                                |   |                                                                                                               |
| Deposit      on Fixed Asset                                                                        |   |                            - |   |                 240,000            |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Other      Assets                                                                                  |   |                                                                                                                                                                |   |                                                                                                               |
|         Prepaid      Loan  Cost - Long Term, Net |   |                 761,850                                                             |   |                 880,650            |
| Deposits                                                                                           |   |                   14,453                                                  |   |                   14,453 |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| Total      other assets                                                                            |   |                 776,303                                                             |   |                 895,103            |
|                                                                                               |   |                                                                                                                                                                |   |                                                                                                               |
| TOTAL      ASSETS                                                                                  |   |  $         5,340,526                                                                                              |   |  $         6,264,882                                             |

----

| Z      TRIM HOLDINGS, INC.                                                                                        |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|-------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      BALANCE SHEETS                                                                                  |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| MARCH  31, 2009                                                                                         |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| LIABILITIES      AND STOCKHOLDERS' EQUITY (DEFICIT)                                                               |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   | (Unaudited)                                                                                                                                                         |                                                                   |                                                                                                                                                                |
|                                                                                                              |                                                                   | 3/31/2009                                                                                                                                                           |                                                                   | 12/31/2008                                                                                                                                                          |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Current      Liabilities                                                                                          |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Accounts      payable                                                                                             |                                                                   |  $         1,034,842                                                                                              |                                                                   |  $            544,325                                                                              |
| Accrued      expenses and other                                                                                   |                                                                   |                 390,221                                                             |                                                                   |                 335,718                                                             |
|              Derivative      Liabilities         |                                                                   |             2,594,752                                                                                   |                                                                   |                            - |
| Total      Current Liabilities                                                                                    |                                                                   |             4,019,815                                                                                   |                                                                   |                 880,043                                                             |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Long      Term Liabilities                                                                                        |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|              Convertible      Notes Payable, Net |                                                                   |             2,754,931                                                                                   |                                                                   |             2,559,736                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Long Term Liabilities                                                                                  |                                                                   |             2,754,931                                                                                   |                                                                   |             2,559,736                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Liabilities                                                                                            |                                                                   |             6,774,746                                                                                   |                                                                   |             3,439,779                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Stockholders'      Equity (Deficit)                                                                               |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Common      stock, $0.00005 par value; authorized 200,000,000                                                     |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| shares;      issued and outstanding 2,687,879 and                                                                 |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| 2,597,879      shares, March 31, 2009 and December 31, 2008                                                       |                                                                   |                         134                 |                                                                   |                         130                 |
| respectively                                                                                                      |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
|   Common      stock to be issued                                                                        |                                                                   |                            - |                                                                   |                            - |
| Additional      paid-in capital                                                                                   |                                                                   |           75,308,265                                                                                              |                                                                   |           74,487,848                                                                                              |
| Accumulated      deficit                                                                                          |                                                                   |         (76,742,619)                                                                                                        |                                                                   |         (71,662,875)                                                                                                        |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| Total      Stockholders' Equity (Deficit)                                                                         |                                                                   |            (1,434,220)                                                                                       |                                                                   |             2,825,103                                                                                   |
|                                                                                                              |                                                                   |                                                                                                                                                                |                                                                   |                                                                                                                                                                |
| TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                         |  $         5,340,526 |                                                                                                                                                                |  $         6,264,882 |

----

| Z      TRIM HOLDINGS, INC. AND SUBSIDIARIES                |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
|------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      STATEMENTS OF OPERATIONS                 |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| FOR      THE THREE MONTHS ENDED MARCH 31                   | 2009                                                                                                                                                                                                                                                                                                                                                                                     |   | 2008                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| REVENUES:                                                  |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
|   Products                                       |  $           127,969                                                                                                                                                                                                                                                                                                         |   |  $              66,444                                                                                                                                                                                                                                                                                                 |
|   Services                                       |                           -                                                                                                                                                                                                                            |   |                           -                                                                                                                                                                                                                                     |
|     Total      revenues                |                127,969                                                                                                                                                                                                                                                                                        |   |                  66,444                                                                                                                                                                                                                                                                                      |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| COST      OF REVENUES:                                     |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
|   Products                                       |                350,617                                                                                                                                                                                                                                                                                        |   |                573,114                                                                                                                                                                                                                                                                                                 |
|     Total      cost of revenues        |                350,617                                                                                                                                                                                                                                                                                        |   |                573,114                                                                                                                                                                                                                                                                                                 |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| GROSS      MARGIN                                          |              (222,648)                                                                                                                                                                                                                                                                                                  |   |              (506,670)                                                                                                                                                                                                                                                                                                           |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| OPERATING      EXPENSES:                                   |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| Selling,      general and administrative                   |                                                         1,742,786                                                              |   |    1,326,900                                                                                                                                                                                                                                                                                                                                                                       |
| Impairment      of intangible assets                       |                                                                  -                |   |                                                            136,668                                                       |
| Amortization      of intangible assets                     |                                                                  -                |   |                                                                 3,333                           |
| Loss(Gain)      on asset disposals, net                    |                                                            119,688                                              |   |                                                            (75,000)                                                      |
|     Total      operating expenses      |            1,862,474                                                                                                                                                                                                                                                                                                              |   |            1,391,901                                                                                                                                                                                                                                                                                                                       |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| OPERATING      LOSS                                        |           (2,085,122)                                                                                                                                                                                                                                                                                                                  |   |           (1,898,571)                                                                                                                                                                                                                                                                                                                           |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| OTHER      INCOME (EXPENSES):                              |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| Rental      and other income                               |                                                                 3,101                  |   |                                                               10,863                                      |
| Interest      income                                       |                                                                    219  |   |                                                               13,836                                      |
| Interest      expense                                      |                                                                    (55) |   |                                                                    (35)          |
| Interest      expense - Note Payable                       |                                                          (403,135)                                                        |   |                                                                      - |
| Change      in Fair Value - Derivative                     |                                                          (464,801)                                                        |   |                                                                      - |
| Settlement      (loss) gain                                |                                                                 -                      |   |                                                          (100,180)                                                                 |
|     Total      other income (expenses) |              (864,671)                                                                                                                                                                                                                                                                                                  |   |                (75,516)                                                                                                                                                                                                                                                                                                |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| LOSS      FROM CONTINUING OPERATIONS                       |  $      (2,949,793)                                                                                                                                                                                                                                                                                                                                   |   |  $      (1,974,087)                                                                                                                                                                                                                                                                                                                                            |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| NET      LOSS                                              |  $      (2,949,793)                                                                                                                                                                                                                                                                                                                                   |   |  $      (1,974,087)                                                                                                                                                                                                                                                                                                                                            |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| NET      LOSS PER SHARE - BASIC AND DILUTED                |  $                 (1.13)                                                                                                                                                                                                                                                                      |   |  $                 (0.79)                                                                                                                                                                                                                                                                               |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |
| Weighted      Average Number of Shares Basic and Diluted   |            2,621,546                                                                                                                                                                                                                                                                                                              |   |            2,501,879                                                                                                                                                                                                                                                                                                                       |
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                              |

----

| Z      TRIM HOLDINGS, INC.                                                                                             |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                                                                             |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| FOR      THE THREE MONTHS ENDED MARCH 31                                                                               | 2009                                                                                                                                                                                                    |   |  2008                                                                                                                                                                                              |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                              |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Net      loss                                                                                                          |                 (2,949,793)                                                                                             |   |                 (1,974,087)                                                                                             |
| Adjustments      to reconcile loss from continuing operations to                                                       |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| net      cash used in operating activities:                                                                            |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Depreciation                                                                                                           |                      253,148                                                                   |   | 257,188                                                                                                                                                                                                 |
| Amortiziztion                                                                                                          |                                  - |   | 3,334                                                                                                                                                                                                   |
| Loss      on asset disposal                                                                                            |                      119,688                                                                   |   |                                  - |
| Change      in Fair Value - Derivative Liability                                                                       |                      464,801                                                                   |   |                                                                                                                                                                                                    |
| Stock      based compensation                                                                                          |                      774,221                                                                   |   |                      237,419                                                                   |
| Shares      issued for director fees                                                                                   |                        46,200                                                        |   |                                  - |
| BCF      Amortization                                                                                                  |                      195,195                                                                   |   |                                  - |
| Loan      Cost Amortization                                                                                            |                      118,800                                                                   |   |                                                                                                                                                                                                    |
| Impairment      of intangible assets                                                                                   |                                  - |   |                      136,668                                                                   |
| Stock      and warrant settlements                                                                                     |                                  - |   |                        97,026                                                        |
| Non-cash      settlements                                                                                              |                                  - |   |                       (46,846)                                                            |
| Changes      in operating assets and liabilities                                                                       |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Accounts      receivable                                                                                               |                      115,477                                                                   |   |                       (10,558)                                                            |
| Inventory                                                                                                              |                           8,860                                       |   |                       (80,074)                                                            |
| Prepaid      expenses and other assets                                                                                 |                        23,725                                                        |   |                        45,790                                                        |
| Increase/(Decrease)      in:                                                                                           |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Accounts      payable and accrued expenses                                                                             |                      545,020                                                                   |   |                       (86,418)                                                            |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      USED FOR OPERATING ACTIVITIES                                                                                |                    (284,658)                                                                             |   |                 (1,420,560)                                                                                             |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                              |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Purchase      of Fixed Assets                                                                                          |                    (293,107)                                                                             |   |                       (20,080)                                                            |
| Proceeds      from asset disposals                                                                                     |                        90,000                                                        |   |                                  - |
| CASH      USED FOR INVESTING ACTIVITIES                                                                                |                    (203,107)                                                                             |   |                       (20,080)                                                            |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Net      cash and cash equivalents provided (used) by discontinued      operations                                     |                                  - |   |                              485                       |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| NET      (DECREASE)INCREASE IN CASH                                                                                    |                    (487,765)                                                                             |   |                 (1,440,155)                                                                                             |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      AT BEGINNING OF YEAR                                                                                         |                      592,696                                                                   |   |                   2,436,580                                                                                   |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| CASH      AT THE QUARTER ENDED MARCH 31                                                                                |                      104,931                                                                   |   |                      996,426                                                                   |
|                                                                                                                   |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Supplemental      Disclosures of Cash Flow Information:                                                                |                                                                                                                                                                                                    |   |                                                                                                                                                                                                    |
| Interest      paid                                                                                                     |                                  - |   |                                35            |
|         Common      Stock issued for settlement-Zaghi                          |                                  - |   |                      840,000                                                                   |
|         Transfer      from Deposit on Fixed Assets to Construction in Progress |                      240,000                                                                   |   |                                  - |
|         Cummulative      Effect - Adoption of EITF07-5                         |                   2,129,951                                                                                   |   |                                  - |
|         Reverse      Stock split                                               |                           3,775                                       |   |                                  - |

----

----

----

----

|                             |                                                                          |   |                                                                          |
|----------------------------------|-------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|
|                             | 3/31/2009                                                                     |   | 12/31/2008                                                                    |
| Raw      materials               |  $      25,935                             |   |  $      35,471                             |
| Packaging                        |             1,589 |   |             1,114 |
| Work-in-process                  |          11,060                  |   |             1,879 |
| Finished      goods              |        124,670                             |   |        133,649                             |
| Other      Inventory             |          10,858                  |   |          10,858                  |
|   Total      inventory |  $    174,111                                        |   |  $    182,971                                        |

|                                             |         |   |         |
|--------------------------------------------------|--------------|--------|--------------|
|                                             | 3/31/2009    |   | 12/31/2008   |
| Production,      engineering and other equipment | $5,053,423   |   | $5,301,635   |
| Leasehold      improvements                      | $2,801,053   |   | $2,801,053   |
| Office      equipment and furniture              | $598,860     |   | $598,860     |
| Computer      equipment and related software     | $140,245     |   | $140,245     |
| Construction      in process - Equipment         | $584,329     |   | $53,361      |
| Construction      in process - Leasehold Impr    | $20,994      |   | $18,855      |
|                                             | $9,198,904   |   | $8,914,009   |
| Accumulated      depreciation                    | ($5,067,197) |   | ($4,852,573) |
| Property      and equipment, net                 | $4,131,707   |   | $4,061,436   |

| Depreciation      expense was $253,148 and $257,188 for the three months ended March 31,      2009 and March 31, 2008 respectively.                                                                                            |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| During      the first quarter of 2009, the Company sold an unused piece of equipment      of bottling equipment for $90,000.  The Company recognized a      loss with respect to such equipment, totaling $119,688.  |

|                                    | 3/31/2009                                                                                                                              |   | 12/31/2008                                                                                               |
|-----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|
| Accrued      legal                      |  $                     - |   |  $                - |
| Accrued      payroll and taxes          |                 33,785                                 |   |            31,795                                 |
| Accrued      settlements                |                 50,000                                 |   |          100,000                                            |
| Accrued      Interest                   |               213,230                                            |   |          124,090                                            |
| Accrued      expenses and other         |                 93,206                                 |   |            79,832                                 |
| Total      accrued expenses & other |  $           390,221                                                       |   |  $      335,718                                                       |

----

----

|                                                                     |   | Year      Ended                                                                                                |
|--------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|
|                                                                     |   | March      31                                                                                                  |
|                                                                     |   | 2009                                                                                                           |   | 2008 |
| Numerator:                                                               |   |                                                                                                           |   |   |
| Net      Loss From Continuing Operations                                 |   |  $      (2,949,793)                                                                                       |   |  $   (1,974,087) |
| Deemed  Dividend/      Income from discontinuing operations    |   |  $                 - |   |                $-    |
| Net      Loss  Attributable to Common Stockholders             |   |  $      (2,949,793)                                                                                       |   |  $   (1,974,087) |
| Denominator:                                                             |   |                                                                                                           |   |   |
|                                                                     |   |                                                                                                           |   |   |
| Weighted      average number of shares outstanding                       |   |       2,621,546                                                                  |   |        2,501,879 |
|                                                                     |   |                                                                                                           |   |   |
| Net      loss per share from continuing operations- basic and    diluted |   |         $      (1.13)                                                  |   |  $        (0.79) |
| Income      per share from discontinued operations - basic and diluted   |   |  $               -             |   | $                 - |
| Net      loss per share-basic and diluted                                |   |  $      (1.13)                                                              |   |  $        (0.79) |

|                                  |   | 3/31/2009                                                                                                                 |                                                                                               |   | 3/31/2008                                                                                                                 |                                                                                                          |
|---------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
|                                  |   |                                                                                                                      | Weghted                                                                                            |   |                                                                                                                      | Weighted                                                                                                      |
|                                  |   | Number                                                                                                                    | Average                                                                                            |   | Number                                                                                                                    | Average                                                                                                       |
|                                  |   | of                                                                                                                        | Exercise                                                                                           |   | of                                                                                                                        | Exercise                                                                                                      |
|                                  |   | Shares                                                                                                                    | Price                                                                                              |   | Shares                                                                                                                    | Price                                                                                                         |
| Outstanding      at beginning of year |   |         431,073                                                                   |  $         32.04                                 |   |         553,184                                                                   |  $         31.20                                            |
| Granted                               |   |      1,320,000                                                                                   |  $           0.45                      |   |                     - |                   - |
| Exercised                             |   |                     - |  $               - |   |                     - |                   - |
| Expired      and Cancelled            |   |       (316,678)                                                                             |  $         31.75                                 |   |         (16,392)                                                                  |  $         31.80                                            |
| Outstanding      at end of period     |   |      1,434,395                                                                                   |  $           3.04                      |   |         536,792                                                                   |  $         31.20                                            |
|                                  |   |                                                                                                                      |                                                                                               |   |                                                                                                                      |                                                                                                          |
| Exercisable      at end of period     |   |      1,381,895                                                                                   |  $           3.42                      |   |         535,126                                                                   |  $         31.20                                            |

|                                                | 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2008                                                                                                                                                  |
|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| Weighted      average fair value per option granted |                                                        $                       0.43 |   |  $                       0.90 |
| Risk-free      interest rate                        |            1.99      - 2.99%                                                                                                                                                                                                                                                                                                                                                                         |   |             3      - 4.6 %                                                                |
| Expected      dividend yield                        | 0.00%                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 0.00%                                                                                                                                                 |
| Expected      lives                                 |  1      - 2.5                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                 1      - 1.5                                          |
| Expected      volatility                            | 130.25%                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |  86.32      - 130.22%                                                                                                                            |

----

|                  |   |                                                                                                                                                                |   | Weighted                                                                                                      |   |                                                                       |   |                                                                                                                                                                |
|-----------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |   |                                                                                                                                                                |   | Average                                                                                                       |   | Weighted                                                                   |   |                                                                                                                                                                |
| Range      of         |   |                                                                                                                                                                |   | Remaining                                                                                                     |   | Average                                                                    |   |                                                                                                                                                                |
| Exercise              |   | Options                                                                                                                                                             |   | Contractual                                                                                                   |   | Exercise                                                                   |   | Options                                                                                                                                                             |
| Prices                |   | Outstanding                                                                                                                                                         |   | Life                                                                                                          |   | Price                                                                      |   | Exercisable                                                                                                                                                         |
| $0.01-$1.50           |   |             1,320,000                                                                                   |   |                4.9                 |   |  $       0.45                      |   |             1,267,500                                                                                   |
| $1.51-$3.00           |   |                            - |   |                   - |   |  $           - |   |                            - |
| $3.01      & over |   |                114,395                                                                   |   |                1.1                 |   |  $       2.97                      |   |                114,395                                                                   |
|                  |   |             1,434,395                                                                                   |   |                4.5                 |   |  $       3.42                      |   |             1,381,895                                                                                   |

|    Year Ended | Rentals           |
|------------------------------|-------------------|
|                         | 2009              | 286,415 |
|                         | 2010              | 65,919 |
|                         | 2011              | - |
|                         | 2012              | - |
|                         | 2013              | - |
|                         |        TOTAL | $      352,334 |